tv The David Rubenstein Show Peer to Peer Conversations Bloomberg March 30, 2019 10:00am-10:30am EDT
alix: the next financial crisis, climate change. climate change has the ability to disrupt the economy. houston, we had a problem. refiners on the gulf coast could be running out of oil. the aftermath of the worst regional chemical disaster in 14 years. oil's crude reality. one of the technical problems slowing the pace of the shale boom. it is the parent-child dilemma. ♪ i'm alix steel and welcome to "bloomberg commodities edge."
30 minutes focused on the physical assets of the hottest commodities with the smartest voices in the business. first, spot on. joining me is the chief oil onlyst, and our spotlight is -- first, we kick it off with spot on, our take on the big story. joining me is ashley peterson, from stratus advisors. our spotlight is on oil. >> oil demand right now in the u.s. is actually moving above the previous peak level. we look at oil demand even in europe. it is hanging in there. if i look at the world through the lens of a commodity lens, it does not look that bad. oil could get into the $70, $75 range. alix: jeff curry from goldman sachs. then president trump not liking it. he tweeted this week that it is very important for opec to increase the flow of oil, the prices of oil getting too high. which one is right? jeff or president trump? >> probably going to have to take a middle ground, although i will say we are little closer to the jeff side of the forecast, right around the $75 per barrel range. the problem for trump is that he
tweeted this before and opec responded, raising their production in anticipation of the iran sanctions, and then suddenly there were waivers well above what they expected. we are coming up on the may deadline for waivers again. opec is not going to act until they know what is the right thing to do. alix: the fcc had a conference this week there was a conference this week where all of the major oil countries were there. they said anywhere between $60 and $80, maybe around $70. they are gently bullish. what are the stabilizers? ashley: if i may trading house, i'm going to give a pretty broad range in front of the other trading houses. i think $70, $75 per barrel makes more sense. we have to get some actual conclusions on these iran waivers. what is going on with venezuelan exports? if they can keep the lights on mine enough to get the crude offshore, where is it going to go? that is another big question. alix: basically, we have four or five more weeks where president trump has to decide whether he is going to grant certain
countries waivers so they can import iranian crude. what is going to be the deciding factor in your point of view? ashley: i think it is going to be how he is feeling about domestic policy and whether he has had a political win recently, honestly. the waivers are pretty standard. they are lower than those granted during the obama administration, in volume and number. he could believe that the same and still still claim victory, but if he wants to look like he is taking a harder stance on foreign policy, the good insist that some of the european countries cut imports even more. interestingly, we are dealing with an issue were several countries including india have said that the government shutdown slowed down negotiations, so even these guys have come out and said, we are a few weeks behind in negotiating with the white house, so it is going to be a last-minute decision. alix: in lieu of that, is it going to be the geopolitics driving the price or is it going to be the macro, looking at dollar, yields, risk on, risk off? ashley: it is going to be u.s. supply and the macro.
how people wake up feeling about the global economy and demand. right now, it seems like we have hit some stability, people are fairly confident moving forward. some economic indicators are kind of flashing a little on the red side. u.s. supply in line with forecasts has not been growing gangbusters. there has actually been a lot of capital discipline and the rate counts are down. that is definitely going to support prices. alix: i'm glad you brought that up. permian shale production is huge. schlumberger and halliburton had a warning about difficulties that will slow the rate of growth. the dallas fed survey said something similar. is the market prepped for that kind of slowing growth? ashley: i certainly hope slow -- so. you have the parent-child relationship. these producers were in high graded areas and now they are starting to explore lower value assets, so they are exploring technical difficulties.
additionally, they are facing a maintenance mountain in terms of the decline rates of the new wells. that is going to need to be taken into account. and capital discipline. people don't want to keep pumping money into these companies with no return. the ceos have all acknowledged that on recent calls. we have been saying that slowing growth this year is almost certain. alix: great to catch up with you, thanks a much. ashley petersen of stratus advisors. coming up, brazilian ore miner announcing write-downs and production declines. the first look at the tailing dam collapse that killed 300 people two months ago. and as we head to break, you have floods from the mississippi delta to the dakotas. inundating roads and submerged fields of midwestern farmers prepare for planting season. here, we are looking at collapsed grain bins surrounded by floodwater in pacific junction, iowa. this is bloomberg. ♪
alix: i'm alix steel and this is "bloomberg commodities edge." time for the data dig. we will delve deep into the market trends of the week. the oil inventory numbers were bearish across the board. overall stocks rising by 2.8 million barrels per day. you also had a pretty big build in pad three. lower exports than imports. plus, less refinery utilization. china is filling up on u.s. port imports. the world's second largest economy may buy a record amount of 300,000 tons. think of it as a carrot to help resolve trade issues. -- resolve trade issues between the u.s. and china. i love this chart. seriously, seriously cheap natural gas. this is gas in the permian and
it dropped to -$1.15. that is an all-time low. traders and brokers have to be paid before they can take the gas. i want to dig into 2019 guidance from vale, brazil's iron or e producer, whose production has tripled after its dam disaster. the company says it can lose between 50 million tons and 75 million tons of iron ore this year. peter, walk me through what we learn from the company this week. how bad it is going to get for them? peter: what we learned this week is that they are not that optimistic on restoring lost output that has been shut as a response of safety concerns after the dam disaster. now they have 93 million tons shut in. there is one mine, a large mind e they are optimistic about getting up and running again
this year. the company feels it can be operated safely, but the iron ore market should get used to this huge hole that was left by vale. alix: bloomberg interview the rio tinto ceo. here is what the ceo of rio tinto had to say. >> therefore, the market has an ability to respond. in the short term -- [indiscernible] at that point, we will look at different options. alix: give us some perspective of just how tight the market is if players like rio are not going to up their ore production. peter: vale, on a call today, said that in asia, the actual fiscal impact of the lower supplies coming out of brazil, will only be felt about now because of the long lag time getting the shipments to asia. up until now, the price impact has been largely psychological. i think we can expect more tightness going forward.
alix: we have already seen such a huge rally in iron ore prices. do we have any clarity on when and how vale will be able to restart production? more full steam ahead for them? peter: no. and the company did not offer much guidance on that. now, they have a group of mines that have been shut and they are hoping that some of this, that one of these can be brought up by the end of the year, and that the full impact on sales in the most positive scenario would only be about 50 million tons, but they are leaning toward a more negative scenario. alix: what about the cost impact on that? any impact on the cost for sure yet? peter: you know, one of the things they said was they are not going to be firing employees. they are going to have lower production with similar costs. they are going to be hurt by the lack of production. at the same time, keep in mind
that vale benefit from these higher prices. even though they are producing less, they are being compensated by the higher prices resulting from their own shutdowns. alix: good point, peter. now we want to get into the ring. the worst regional chemical disaster in 14 years. 11 days after the intercontinental terminal tanks erupted in flames, panic spread across houston, the company's ceo apologized. >> let me begin my remarks by expressing my apology and the collective apology of everyone at itt for the impact caused by the terminal fire. alix: with us from houston is mike jeffords who is following the story. what can get in and out of the houston channel and what can't? mike: so, we've tracked so far only one crude, not a max crude tanker, made it into the houston channel.
that was yesterday on a three-day delay. right now, there are probably at least seven or eight crude tankers waiting to get in. getting out is the first priority for the coast guard. as of yesterday, they said the ship channel was 35% open. i think they want to get the ships out to make way for inbound traffic. alix: what is the knock on effect to that? if you have ships going through the channel, what are the restrictions that might be in place that would not have been there before the fire? michael: so, the ships all have to stop and go through a decontamination checkpoint before they can enter and leave the channel. until those ships are coming to -- are coming through the channel clean, there is going to continue to be a delay. so, the last briefing from the company was this morning and they could not give us an estimated time for 100% restart
in the channel. alix: there are four main refiners that are affected by this. do they have enough crude? michael: so, probably not. the short answer is no. there have been reports of some refiners cutting runs. most of them won't confirm that. that is market confidential information. we have only tracked one tanker that has gotten in so far. that was as of late last night. so, i think one did confirm that they have had tanker logistic issues. the other ones have been quiet. chances are that we are going to see some reduced production and it is probably going to be reflected in next week's inventory report from those refineries. three alix: usually refiners have stockpiles on hand. how many days of cover do they typically wind up having? michael: that is typically about
three days. they can also run some crude that they have access to through the pipeline. the problem is is not all crude is the same. as you probably know, the crude that comes through the pipeline is mostly light and produced in texas. those refineries are mostly optimized for heavy crude that they need to import from mexico or other places. that is what the problem is. alix: that is also in short supply. thank you so much. time now for the note of the week, and it comes to us from eric lee. he says from the perspective of the heavy crude producers, they have not only lost volume and market share, but they are also going to get a price hit. they see the middle east and they may lose $7 billion in annual revenue because imo 2020 means less demand for heavy crude. coming up, lynn good, the ceo of duke energy, tells us how her company is repairing for the
discussion. we want to take a closer look at one company betting big on the technology. wants to drive into the future with electrification. the company makes vehicle parts for things like trailers, line haul trucks. axles, gears, breaks. they operate around the world with north america making up 62% of its revenue. top customers are companies like daimler and navistar. meritor is in the middle of a transition. first it was about deleveraging. then it was about driving bottom-line earnings. now it is about better margins and free cash flow. then it will be about electrification. the company expects battery electric vehicles by 2025. to capitalize on this, meritor announced 22 electrification programs with car companies who put at least 130 ev commercial trucks on the road in the next few years.
it integrates an electric motor into the axle, which frees up space for batteries and other components. in the first half of this year, major customers will begin operating a medium duty pickup truck with the electric drive system. the first of six. the return on investment capital could take a long time. the company's long-term strategic plan says it is worth it. another hot topic at the conference was climate change. the san francisco fed said the climate related financial risks could affect the economy through elevated credit threads, greater precautionary saving, and an extreme financial crisis. with infrastructure damage, ag losses, and commodity prices spiking. great to see you. what was your biggest take away over the two-day summit? >> a lot of chatter about de-carbonization, expanding that into new parts of the economy. alix: what does that mean? >> it is the route to
controlling carbon. we saw talk about de-carbonizing industrial heat. eighting orht w electricity. alix: what are the most prevalent ways that the industry thinks they can move forward quicker and what are the technologies that have not caught up yet? >> well, the lightweighting is a point of discussion from all different sides. to the extent that you can lightweight vehicles. you can reduce carbon emissions along with benefiting their efficiency, and that really took shape in a lot of panels. alix: and what is sort of behind? what kind of techniques and things people are trying to catch up with? >> we are talking about new chemicals used to create composite materials that go into these vehicles and we are talking about new technologies that cut the emissions from heating sources that make it more efficient, therefore more cost effective, and also contribute less carbon to the
atmosphere. alix: did you get a sense because i was struck by the oil companies that were talking about new energy platforms, did you get the sense that it is companies trying to shrink their own carbon footprint or also companies that are producers of the sort of power, electricity, oil and gas, to make with a -- to make what they produce cleaner? stephen: i think it is all the things you mentioned, but in addition, they are looking for the best economies, and they are looking to improve costs, and these carbon technologies are the lowest cost energy generating technologies in most parts of the country. alix: it was a great summit. thank you very much. so, one question on climate change is who pays for it? i set down with lynn good, ceo of duke energy. its operations in the carolinas were affected by three hurricanes and i asked her about the longer-term impact. lynn: we have continued to invest in our grid for hardening and resiliency and having a response when a hurricane hits to get power back as quickly as we can. i think that adaptation is going
to be important as we continue to work through the weather events that come in the future. alix: what about technical things like seawalls or sensors or things like that, something that you have to start investing? lynn: i think adaptation is a key part of that. storm hardening and resiliency, the things you are talking about, targeted undergrounding, self-healing techniques that isolate where the outage occurs, concrete poles, things that can withstand more hurricane force winds. moving substations and transformers away from floodplains, or areas that have turned into floodplains as a result of the experience we have had. all of those things are being reviewed and we think about the grid investment plan we have put forward in the carolinas and florida and it is directed at hardening and resiliency as one key element. alix: part of the grid to wrap that into it, pg&e in california, build power lens
-- build power lines under the ground. , for example, or have more regional smart grids -- what is the grid looking like for you to mitigate climate change issues? lynn: i think all of the things you are talking about, it is going to be some of all of those things. there is not one silver bullet solution to this. targeted undergrounding makes a lot of sense in areas that are vulnerable to outages. investment for hardening and resiliency, moving away from floodplains, putting up structures able to withstand hurricane force winds. it will be a little bit of all of those things and it was actually interesting during hurricane florence, we had in front of us what had happened from hurricane matthew, which areas where vulnerable, what the floodwaters had gone, what should we expect? and we used all that in developing hardening plans and our response. alix: how do you model cost structure for that? it has to be quite expensive. lynn: grid investment is what i would point to first of all. that is the adaptation. as we look out over the next 10
years, duke has a program around hardening and resiliency, but there are other benefits to it. cyber and physical security. enabling more renewables. enabling the customer experience. making the grid the center of the investment strategy to address climate change and the needs of the system. i would see that as a multiyear investment strategy. of course, if a hurricane hits, there is a lot of work that we do with logistics and response and communications and dealing with our customers to help them through that issue to get power back as quickly as possible. alix: and the cost profile you can manage? how do you manage it? lynn: the cost profile for hurricane response is something that 2018 was a challenging year for us. we spent about $1 billion on hurricane response in 2018. we will look for ways to spread that out over a long period of time to minimize the impact to customers. hardening and resiliency, we believe the payback will be extraordinary with benefits to customers over a long period of time. managing impact to price of customers is always front and center.
alix: last question on this going into 2019, how much are you estimating spending on response for climate change issues or in hardening the grid and other preventative measures? lynn: i would put all of that in our capital plan at this point. we don't budget in any given year for anything other than ordinary storm experience. until we see what the hurricane situation might look like, we don't have that in our plans, but we will adjust. that is for balance sheet important for events that happen in any given year.
alix: that was part of my interview with the duke energy ceo, lynn good. traders going hog wild, literally. the hog contract, june lean, historic volatility hovering around the highest since 1986. why are investors so keen on ringing home the bacon? african swine fever is leading to panic buying, making the hog space anything but boar-ing. [laughter] alix: the conference kicks off in shanghai. wednesday, california wildfire admissions as well. that wraps it up for "bloomberg commodities edge." this is bloomberg. ♪ this isn't just any moving day.
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